Jonas Morris on the Squeeze

This is Jonas’ second installment on the economic landscape. Jonas has more than thirty years as a reporter, analyst and writer, and has worked in many Democratic campaigns, including the presidential campaign of Lyndon Johnson.

The Economic Numbers May Appear Strong, But Many Folks Are Hurting

Kerry and Bush each present their view of the state of the economy: Bush that the economy is robust and getting better; Kerry that the perception of a robust economy is seriously misleading - unemployment is not declining, although jobs are being created, those jobs are lower paying than the jobs lost over the past three years, meanwhile the cost of living goes up - healthcare costs rise, food and fuel costs rise, child-care costs rise, total payrolls are 1.2 million jobs lower
than when Bush was sworn in as president, since the end of the recession, wages have grown 3 cents a month while corporate profits have increased by over 60 percent.

In January of 2004 jobs were still 2.3 million below the number in March 2001, even though jobs have been increasing in recent months. Because the period during which the growth in jobs has been unusually long, many people have given up looking for jobs, and thus are not part of the unemployment statistics.

If these 2.2 million “missing” workers had been counted in the employment survey, the unemployment rate would be 7.1 percent, rather than the current 5.6 percent.

The unemployment rate is unlikely to improve over the next several months, because even though new jobs will continue to be created (and they are low paying jobs), “missing” workers will return to the labor market and be counted as unemployed but looking for work.

Thirty-three months after the recession began, actual loss of aggregate real wages and salary income is down 0.7 percent.

Population continues to grow and the number of working-age people continues to expand. In order to have kept up with this growth, employment would have needed to by 4.2 percent over the past 34 months. Combining the number of jobs created with the number needed to keep up with population growth leaves a deficit of 4.2 million people looking for jobs. That’s why total wage and salary income has fallen by 0.7 percent since March 2001.

Minimum wage, which has become a key ingredient to sustaining worker economic viability, may be raised in a variety of ways this year - by Congress, some states, and some cities. This is because a weak labor market is unlikely to provide low-wage workers the leverage needed to negotiate higher wages. Without a minimum wage hike, these workers will be living on very minimum incomes. The economy is experiencing another year - the fourth consecutive year - of a geographically widespread labor market slump. The result: most states face uncertain economic environments.

Nevertheless, a minimum wage that allows low-wage workers to meet basic needs is opposed by those who don’t view the weak labor market as an appropriate reason to raise minimum wages. Opponents of increases in the minimum wage argue that such increases cause low-wage workers to lose their jobs and thus are the cause of weak labor markets, as reflected by higher unemployment rates. However, recent research shows there is no valid rationale for believing that state minimum wages cause measurable job losses. Other forces, especially the decline in manufacturing employment, is a more solid explanation of poor state economies.

An examination of the economic situation in the twelve states with minimum wages above the federal level show that the connection between minimum wages and unemployment is very weak.

Consider:

Many states without minimum wages set above the federal level (including Michigan, Illinois, South Carolina, and Texas) also had high unemployment rates in December 2003.

Three states with higher minimum wages - Hawaii, Delaware, and Vermont - were among the 15 states with unemployment rates less than 5% (the national average was 5.7%). Of the 12 states with higher minimum wages, eight saw a smaller increase in unemployment between 2000 and 2003 than the national average.

Conclusion: high state minimum wages fail to correlate to poor labor market outcomes.

Half of the people surveyed in a recent Gallup poll said gas price increases have caused them financial hardship; a third said they have reduced other spending significantly. The number of people cutting back is dependent upon income levels - over half of people earning less than $30,000 a year have reduced spending while only 15 percent of those making $75,000 or more have cut back.

The AFL-CIO reports that 2.6 million private-sector jobs, in net terms, or 68,000 each month, have been lost since Bush became president in January 2001. By March 2004, 8.4 million were officially jobless, although experts suggest the total number of unemployed and underemployed is in excess of 14 million.

Jobs that pay well have disappeared as a result of the recession that began in 2001.

Congressional Budget Office March budget projections show the federal government running a large cumulative deficit over the next ten years. But CBO’s baseline projection, it acknowledges, is overly optimistic, because the costs of continuing policies, such as the Bush tax cuts, are not included. Omitted costs amounting to $2.6 trillion are likely to be incurred over the next ten years. Adjusting the CBO baseline for such costs raises the deficit projection to $4.6 trillion over the next ten years.

Deficits probably will never fall below $300 billion in any year, and will exceed $600 billion by 2014.

Since the beginning of 2001, the budget outlook for the next ten years (to 2011) has deteriorated by $8.8 trillion, with projections of surpluses being replaced by projections of large, sustained deficits. Tax cuts are the single largest factor behind the move from surpluses to deficits.

Under these assumptions, the national debt climbs from $3.3 trillion at the end of 2001 to $9.1 trillion by the end of 2014. The national debt will be 51 percent of GDP by 2014.

The deficit exceeds $300 billion in every year and will be about $417 billion in 2009, the year in which the President has said that the deficit would be cut in half. Since $417 billion is not much below the projected 2004 deficit, little progress will be made toward reducing the deficit.

Health care spending per privately insured person increased 7.4 percent in 2003. Employers raised patient cost sharing for the third year in a row.

Although total health care spending per privately insured person rose 7.4 percent in 2003, and while additional data show that the US has entered a period of decelerating health care costs following a steep acceleration during furing the latter part of the 1990s, these costs trend remained high by historical standards and continued to substantially outpace U.S. economic growth.

But reports by health insurance companies, consumers are facing a sizable cost-sharing increases in 2004. As a result, employers are increasing cost sharing to control rising premiums, but in contrast they made little change in the total premium that employees pay. Employers appear to be using increased patient cost sharing to encourage less use of health services. With demand for healthcare relatively inelastic, those who pay premiums will realize most of their savings by shifting costs to those who use services.